No more California bankruptcies seen this year -S&P

SAN DIEGO, May 2 (Reuters) - After California stunned the$3.7 trillion municipal debt market last year with threebankruptcy filings, analysts at Standard & Poor's do not expectany more - this year.

Local government finances in California are improving andconcerns of more municipal bankruptcies popping up in the mostpopulous U.S. state are overdone, said S&P analysts, speaking onWednesday on the sidelines of the annual National Federation ofMunicipal Analysts conference in San Diego.

So far this year there have been no signs of potential munibankruptcies, said S&P analyst Gabriel Petek, while S&P analystMatthew Reining said that "We believe most credits are doingquite well."

S&P's David Hitchcock added that local revenues should pickup as California's housing markets improve. He also said thatdespite the growing attention to rising pension spending localgovernments should be able to manage it.

A city of 300,000, Stockton is the biggest U.S. city to filefor bankruptcy and how it has proposed repairing its financeshas put it at odds with its so-called capital market creditors.

Bondholders and bond insurers are particularly concernedabout its plan to maintain its pension payments to theCalifornia Public Employees' Retirement System while trying toimpose losses, or so-called haircuts, on city debt in theirportfolios.

U.S. Bankruptcy Judge Christopher Klein last month said theissue of Stockton's pension payments would have to wait for areview, provided the city keeps them up in its plan to adjustdebts.

Stockton may file that adjustment plan as soon as July.

PUBLIC PENSIONS

Growing public pension expenses for local governments inCalifornia and elsewhere have become a concern for municipaldebt analysts in recent years.

"It's an obligation. To that extent it competes a little bitwith debt service," said John Hallacy, a managing director atBank of America Merrill Lynch and its manager of muni bondresearch.

Lawyers for Stockton's bond insurers led the court challengeto the city's bankruptcy eligibility and are now preparing tofight if the city's plan excludes pension payments and demandscreditors swallow losses.

Before filing for bankruptcy, Stockton cut $90 million inspending in response to a sharp drop in revenue caused by theimplosion of its once sizzling housing market.

City officials opted for bankruptcy in the face of $26million deficit that they said they were unable to close withoutdeeper cuts that would endanger safety in the crime-plaguedcity. They have also defended pension spending as a way toretain and recruit employees, especially police officers.

Steven Kreisberg, head of collective bargaining for theAmerican Federation of State, County and Municipal Employees, defended Stockton's pension payments at the NFMA conference,saying Stockton's workers had suffered financially.